The Motley Fool

Have £3,000 to invest? Here are 2 FTSE 100 dividend stocks I consider bargains after recent heavy selling

Image source: Getty Images.

Smurfit Kappa (LSE: SKG) and BAE Systems (LSE: BA) are two dividend shares that took a pasting in October, their share prices ducking 16% and 17% respectively over the course of the month.

Smurfit Kappa was not only bashed up by the waves of risk-aversion battering the globe’s shares markets last week. The company plummeted last month amid fears that a raft of extra capacity is about to enter the market, casting some doubt over the firms’ capacity to keep hiking product prices in the years ahead.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Still, at its current share price, Smurfit Kappa for one changes hands on a forward P/E ratio of 10.7 times.  This more than factors in the more problematic supply outlook than we faced a few months ago, and is particularly low given the excellent trading details released last month.

The business declared that underlying revenues had jumped an impressive 7% during the first nine months of 2018, thanks to continued demand growth across most of its markets as well as improving cost recovery. And as a result it said that it expects a “full-year outcome materially better than 2017.”

This more or less matches what City analysts are forecasting, what with an earnings rise of 66% currently being suggested by consensus. Consequently the number crunchers are predicting further dividend growth as well, last year’s reward of 87.6 euro cents per share anticipated to move to 94 cents in the current period and resulting in an inflation-bashing 3.2%. And if realised this would mark the seventh consecutive year of meaty payout increases.

While there may be more material moving into the market than previously expected, the rate at which demand is growing for Smurfit Kappa’s product, allied with the impact of its fizzy acquisition drive — it spent €133m to acquire Serbia’s major packaging players FHB and Avala Ada last month — makes me confident that it can continue delivering strong and sustained profits and dividend growth.

An even bigger dividend yield

Diving market confidence was not the only problem that the BAE Systems (LSE: BA) share price faced last month, the fallout of the suspected murder of journalist Jamal Khashoggi by Saudi Arabian agents also causing some significant investor tension.

While all the facts surrounding the case are to be ascertained, the global condemnation of Riyadh has been loud and has caused some to fear that BAE Systems’ sales to the Saudi kingdom could be pulled by the British government. The sale of Typhoon planes is obviously a huge money spinner for the business, after all, and defence-related spending is only likely to escalate in the years ahead.

I believe there’s little reason to expect arms exports to Saudi Arabia to stop. UK politicians would be fearful of losing not only billions of pounds of lost revenues but also co-operation with a key ally in matters of intelligence. Indeed, the government’s reluctance to pull the plug on weapons sales even in spite of Saudi military action in Yemen underlines how unlikely it is that this latest chapter will halt BAE Systems’ shipments to the Middle East.

Right now the defence giant carries a forward P/E ratio of 12.8 times as well as an inflation-beating 4.2% yield. I expect its share price, like that of Smurfit Kappa, to recover significantly over time, and reckon that both could be considered decent dip buys as of today.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.